Table of Contents
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM
10-Q
 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September 30, 2022
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
        
    
    
    
TO
        
    
    
    
Commission File Number
001-36500
 
 
CymaBay Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
94-3103561
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
7575 Gateway Blvd, Suite 110
NewarkCA
 
94560
(Address of principal executive offices)
 
(Zip Code)
(510)
293-8800
(Registrant’s telephone number, including area code)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
symbol(s)
 
Name of each exchange
on which registered
Common stock, $0.0001 par value per share
 
CBAY
 
Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes     ☒   No   ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes     ☒   No   ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in
Rule 12b-2
of the Exchange Act.
 
Large accelerated filer
    
Accelerated filer
 
Non-accelerated
filer
    
Smaller reporting company
 
        
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☐
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2
of the Exchange Act).    Yes   ☐    No   
As of October 31, 2022, there were 84,681,063 shares of the registrant’s common stock outstanding.
 
 
 


Table of Contents

CYMABAY THERAPEUTICS, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 

         Page  

PART I

 

FINANCIAL INFORMATION

     3  

Item 1.

 

Financial Statements

     3  
 

Condensed Consolidated Balance Sheets at September 30, 2022 and December 31, 2021 (unaudited)

     3  
 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)

     4  
 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (unaudited)

     5  
 

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)

     6  
 

Notes to Condensed Consolidated Financial Statements (unaudited)

     7  

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     17  

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     24  

Item 4.

 

Controls and Procedures

     24  

PART II

 

OTHER INFORMATION

     25  

Item 1.

 

Legal Proceedings

     25  

Item 1A.

 

Risk Factors

     25  

Item 6.

 

Exhibits

     48  

Signatures

     49  


Table of Contents
PART I. FINANCIAL INFORMATION
 
Item 1.
Financial Statements
CymaBay Therapeutics, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(unaudited)
 
 
  
September 30,
2022
 
 
December 31,
2021
 
Assets
  
 
Current assets:
  
 
Cash and cash equivalents
   $ 30,691     $ 125,806  
Marketable securities
     122,724       60,729  
Prepaid research and development expenses
     668       2,371  
Other prepaid expenses and current assets
     1,041       2,193  
    
 
 
   
 
 
 
Total current assets
     155,124       191,099  
Property and equipment, net
     845       1,178  
Non-current
marketable securities
              8,067  
Operating lease
right-of-use
asset
     197       254  
Other assets
     3,081       1,720  
    
 
 
   
 
 
 
Total assets
   $ 159,247     $ 202,318  
    
 
 
   
 
 
 
Liabilities and stockholders’ equity
                
Current liabilities:
                
Accounts payable
   $ 479     $ 2,728  
Accrued research and development expenses
     6,622       9,752  
Other accrued liabilities
     5,610       5,886  
    
 
 
   
 
 
 
Total current liabilities
     12,711       18,366  
Development financing liability
     86,152       50,320  
Long-term portion of operating lease liability
     206       695  
    
 
 
   
 
 
 
Total liabilities
     99,069       69,381  
Commitments and contingencies
                
Stockholders’ equity:
                
Preferred stock, $0.0001 par value: 10,000,000 shares authorized; no shares issued and outstanding
     —         —    
Common stock, $0.0001 par value: 200,000,000 shares authorized; 84,681,063 and 84,677,939 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
     8       8  
Additional
paid-in
capital
     906,968       899,798  
Accumulated other comprehensive loss
     (574     (13
Accumulated deficit
     (846,224     (766,856
    
 
 
   
 
 
 
Total stockholders’ equity
     60,178       132,937  
    
 
 
   
 
 
 
Total liabilities and stockholders’ equity
   $ 159,247     $ 202,318  
    
 
 
   
 
 
 
 
See accompanying notes to the condensed consolidated financial statements.
 
3


Table of Contents
CymaBay Therapeutics, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share information)
(unaudited)
 
 
  
Three Months Ended
 
 
Nine Months Ended
 
 
  
September 30,
 
 
September 30,
 
 
  
2022
 
 
2021
 
 
2022
 
 
2021
 
Operating expenses:
  
 
 
 
Research and development
  
$
15,459
 
 
$
17,010
 
 
$
51,765
 
 
$
46,137
 
General and administrative
  
 
5,904
 
 
 
5,179
 
 
 
17,869
 
 
 
16,936
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total operating expenses
  
 
21,363
 
 
 
22,189
 
 
 
69,634
 
 
 
63,073
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss from operations
  
 
(21,363
 
 
(22,189
 
 
(69,634
 
 
(63,073
Other income (expense), net:
  
     
 
     
 
     
 
     
Interest income
  
 
677
 
 
 
29
 
 
 
1,098
 
 
 
140
 
Interest expense
  
 
(3,819
 
 
(522
 
 
(10,832
 
 
(522
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total other income (expense), net
  
 
(3,142
 
 
(493
 
 
(9,734
 
 
(382
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
  
$
(24,505
 
$
(22,682
 
$
(79,368
 
$
(63,455
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive loss:
  
     
 
     
 
     
 
     
Unrealized loss on marketable securities
  
 
(133
 
 
(2
 
 
(561
 
 
(9
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total other comprehensive loss
  
 
(133
 
 
(2
 
 
(561
 
 
(9
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive loss
  
$
(24,638
 
$
(22,684
 
$
(79,929
 
$
(63,464
Basic and diluted net loss per common share
  
$
(0.28
 
$
(0.33
 
$
(0.90
 
$
(0.92
Weighted average common shares outstanding used to calculate basic and diluted net loss per common share
  
 
87,804,272
 
 
 
69,022,937
 
 
 
87,803,388
 
 
 
68,985,112
 
See accompanying notes to the condensed consolidated financial statements.
4

Table of Contents
CymaBay Therapeutics, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
 
    
Nine Months Ended
 
    
September 30,
 
    
2022
   
2021
 
Operating activities
    
Net loss
   $ (79,368   $ (63,455
Adjustments to reconcile net loss to net cash used in operating activities:
    
Depreciation and amortization
     525       515  
Stock-based compensation expense
     7,156       7,611  
Write-off
of deferred financing costs
              312  
Accretion of development financing liability
     10,832       522  
Net accretion and amortization of investments in marketable securities
     (283     543  
Changes in assets and liabilities:
    
Other prepaid expenses and current assets
     2,855       (725
Other assets
     (1,413     (1,514
Accounts payable
     (2,061     512  
Accrued research and development expenses
     (3,130     1,660  
Other accrued liabilities
     (437     (1,169
  
 
 
   
 
 
 
Net cash used in operating activities
     (65,324     (55,188
Investing activities
    
Purchases of property and equipment
     (135     (87
Purchases of marketable securities
     (162,346     (44,607
Proceeds from maturities of marketable securities
     108,140       117,360  
  
 
 
   
 
 
 
Net cash (used in) provided by investing activities
     (54,341     72,666  
Financing activities
    
Proceeds from issuance of common stock pursuant to equity award plans
     9       205  
Proceeds from development financing, net of transaction costs
     25,000       23,087  
Issuance costs paid for issuance of common stock
     (459         
  
 
 
   
 
 
 
Net cash provided by financing activities
     24,550       23,292  
  
 
 
   
 
 
 
Net (decrease) increase in cash and cash equivalents
     (95,115     40,770  
Cash and cash equivalents at beginning of period
     125,806       28,193  
  
 
 
   
 
 
 
Cash and cash equivalents at end of period
   $ 30,691     $ 68,963  
  
 
 
   
 
 
 
Supplemental disclosure
    
Cash paid for amounts included in the measurement of lease liabilities
   $ 513     $ 498  
Supplemental
non-cash
investing and financing activities
    
Accrued financing costs
   $        $ 350  
Accrued costs for other assets
   $ 52     $     
See accompanying notes to the condensed consolidated financial statements.
 
5

Table of Contents
CymaBay Therapeutics, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except share information)
(unaudited)
 
 
  
Three and Nine Months Ended September 30, 2022
 
 
  
 
 
  
 
 
  
 
 
  
Accumulated
 
 
 
 
 
 
 
 
  
 
 
  
 
 
  
Additional
 
  
Other
 
 
 
 
 
Total
 
 
  
Common Stock
 
  
Paid-in
 
  
Comprehensive
 
 
Accumulated
 
 
Stockholders’
 
 
  
Shares
 
  
Amount
 
  
Capital
 
  
Loss
 
 
Deficit
 
 
Equity
 
Balances as of December 31, 2021
     84,677,939      $ 8      $ 899,798      $ (13   $ (766,856   $ 132,937  
Issuance costs related to issuance of common stock and pre-funded warrants
               —          5        —         —         5  
Stock-based compensation expense
     —          —          2,414        —         —         2,414  
Net loss
     —          —          —          —         (27,769     (27,769
Net unrealized loss on marketable securities
     —          —          —          (206     —         (206
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Balances as of March 31, 2022
     84,677,939      $ 8      $ 902,217      $ (219   $ (794,625   $ 107,381  
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Stock-based compensation expense
     —          —          2,392        —         —         2,392  
Net loss
     —          —          —          —         (27,094     (27,094
Net unrealized loss on marketable securities
     —          —          —          (222     —         (222
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Balances as of June 30, 2022
     84,677,939      $ 8      $ 904,609      $ (441   $ (821,719   $ 82,457  
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Issuance of common stock upon exercise of stock options
     3,124        —          9        —         —         9  
Stock-based compensation expense
     —          —          2,350        —         —         2,350  
Net loss
     —          —          —          —         (24,505     (24,505
Net unrealized loss on marketable securities
     —          —          —          (133     —         (133
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Balances as of September 30, 2022
     84,681,063      $ 8      $ 906,968      $ (574   $ (846,224   $ 60,178  
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
 
  
Three and Nine Months Ended September 30, 2021
 
 
  
 
 
  
 
 
  
 
 
  
Accumulated
 
 
 
 
 
 
 
 
  
 
 
  
 
 
  
Additional
 
  
Other
 
 
 
 
 
Total
 
 
  
Common Stock
 
  
Paid-in
 
  
Comprehensive
 
 
Accumulated
 
 
Stockholders’
 
 
  
Shares
 
  
Amount
 
  
Capital
 
  
Income (Loss)
 
 
Deficit
 
 
Equity
 
Balances as of December 31, 2020
     68,946,092      $ 7      $ 819,549      $ 8     $ (676,858   $ 142,706  
Stock-based compensation expense
     —          —          2,505        —         —         2,505  
Net loss
     —          —          —          —         (17,551     (17,551
Net unrealized loss on marketable securities
     —          —          —          (14     —         (14
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Balances as of March 31, 2021
     68,946,092      $ 7      $ 822,054      $ (6   $ (694,409   $ 127,646  
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Issuance of common stock upon exercise of stock options
     51,846        —          106        —         —         106  
Stock-based compensation expense
     —          —          2,557        —         —         2,557  
Net loss
     —          —          —          —         (23,222     (23,222
Net unrealized gain on marketable securities
     —          —          —          7       —         7  
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Balances as of June 30, 2021
     68,997,938      $ 7      $ 824,717      $ 1     $ (717,631   $ 107,094  
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Issuance of common stock upon exercise of stock options
     46,031        —          99        —         —         99  
Stock-based compensation expense
     —          —          2,549        —         —         2,549  
Net loss
     —          —          —          —         (22,682     (22,682
Net unrealized loss on marketable securities
     —          —          —          (2     —         (2
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Balances as of September 30, 2021
     69,043,969      $ 7      $ 827,365      $ (1   $ (740,313   $ 87,058  
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
See accompanying notes to the condensed consolidated financial statements.

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CymaBay Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Organization and Description of Business
CymaBay Therapeutics, Inc. (the Company or CymaBay) is a clinical-stage biopharmaceutical company focused on developing and providing access to innovative therapies for patients with liver and other chronic diseases with high unmet medical need. The Company’s key clinical development candidate is seladelpar. Seladelpar has been under development primarily for the treatment of primary biliary cholangitis (PBC), a rare liver disease. The Company was incorporated in Delaware in October 1988 as Transtech Corporation. The Company’s headquarters and operations are located in Newark, California and it operates in one segment.
Liquidity
The Company has incurred net operating losses and negative cash flows from operations since its inception. During the three and nine months ended September 30, 2022, the Company incurred a net loss of $24.5 million and $79.4 million, respectively, and during the nine months ended September 30, 2022, used $65.3 million of cash in operations. At September 30, 2022, the Company had an accumulated deficit of $846.2 million.
Historically, the Company has incurred substantial research and development expenses in the course of studying its product candidates in clinical trials. To date, none of the Company’s product candidates have been approved for marketing and sale, and the Company has not recorded any revenue from product sales. Generally, the Company’s ability to achieve profitability is dependent on its ability to successfully develop, acquire or
in-license
additional product candidates, conduct clinical trials for those product candidates, obtain regulatory approvals, and support commercialization activities for those product candidates. Any products developed will require approval of the U.S. Food and Drug Administration (FDA) or a foreign regulatory authority prior to commercial sale. The regulatory approval process is expensive, time-consuming, and uncertain, and any denial or delay of approval could have a material adverse effect on the Company. Even if approved, the Company’s products may not achieve market acceptance and will face competition from both generic and branded pharmaceutical products.
As of September 30, 2022, the Company had cash, cash equivalents and marketable securities totaling $153.4 million, which the Company believes is sufficient to fund its current operating plan for at least twelve months from the issuance date of its financial statements. The Company has historically obtained, and expects to obtain in the future, additional financing to fund its business strategy through: future equity offerings; debt financing; one or more possible licenses, collaborations or other similar arrangements with respect to development and/or commercialization rights of the Company’s product candidates; or a combination of the above. It is unclear if or when any such transactions will occur, on satisfactory terms or at all. The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and its ability to pursue its business strategies. If adequate funds are not available to the Company, it could have a material adverse effect on the Company’s business, results of operations, and financial condition. Market volatility, whether resulting from the global novel coronavirus disease
(COVID-19)
pandemic, geopolitics or other factors could also adversely impact the Company’s ability to access capital when and as needed. Failure to raise sufficient capital when needed could require the Company to significantly delay, scale back or discontinue one or more of its product development programs or commercialization efforts, or other aspects of its business plans, and the Company’s operating results and financial condition would be adversely affected.
2. Summary of Significant Accounting Policies
Basis of Presentation and Use of Estimates
The accompanying interim condensed consolidated financial statements are unaudited and are comprised of the accounts of CymaBay and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company has no unconsolidated subsidiaries or investments accounted for under the equity method.
These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), which requires management to make informed estimates and assumptions that impact the amounts and disclosures reported in the condensed consolidated financial statements and accompanying notes, and the requirements of the United States Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted.
In management’s opinion, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements and include normal recurring adjustments necessary for the fair presentation of the Company’s financial position and its results of operations and comprehensive loss and its cash flows for the periods presented. These statements do not include all disclosures required by U.S. GAAP and should be read in conjunction with the Company’s financial statements and accompanying notes for the fiscal year ended December 31, 2021, which is contained in the Company’s Annual Report on Form
10-K
as filed with the SEC on March 17, 2022. The results for the three and nine months ended September 30, 2022 are not necessarily indicative of results to be expected for the entire year ending December 31, 2022 or future operating periods.
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The condensed consolidated financial statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect the amounts and disclosures reported in the condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Actual results could differ materially from those estimates and assumptions. These estimates form the basis for making judgments about the carrying values of assets and liabilities when these values are not readily apparent from other sources. Estimates are assessed each reporting period and updated to reflect current information and any changes in estimates will generally be reflected in the period first identified.
Fair Value of Financial Instruments
The Company’s financial instruments during the periods reported consist of cash, cash equivalents, marketable securities, accounts payable, certain accrued liabilities, and the development financing liability.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs and is as follows:
Level 1—Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2—Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly.
Level 3—Inputs that are significant to the fair value measurement and are unobservable (i.e. supported by little or no market activity), which requires the reporting entity to develop its own valuation techniques and assumptions.
The carrying amounts of cash, accounts payable, and certain accrued liabilities approximate their related fair values due to the short-term nature of these instruments. Cash is classified as level 1 and accounts payable and accrued liabilities as level 2 under the fair value hierarchy.

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The following tables present the Company’s financial assets that are measured at fair value on a recurring basis using the above input categories (in thousands):
 
    
As
 
of
 
September 30, 2022
 
    
Level 1
    
Level 2
    
Level 3
    
Total
 
Assets:
                                   
Cash equivalents:
                                   
Money market funds
   $ 24,208      $ —        $ —        $ 24,208  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total cash equivalents
     24,208        —          —          24,208  
Marketable securities:
                                   
U.S. and foreign commercial paper
     —          58,720        —          58,720  
U.S. and foreign corporate debt securities
     —          24,681        —          24,681  
Supranational debt securities
     —          12,814        —          12,814  
U.S. agency securities
     —          2,950        —          2,950  
U.S. treasury securities
     —          23,559        —          23,559  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total marketable securities
     —          122,724        —          122,724  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total assets measured at fair value
   $ 24,208      $ 122,724      $ —        $ 146,932  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
 
  
As of December 31, 2021
 
 
  
Level 1
 
  
Level 2
 
  
Level 3
 
  
Total
 
Cash equivalents:
  
     
  
     
  
     
  
     
Money market funds
   $ 85,638      $ —        $ —        $ 85,638  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total cash equivalents
     85,638        —          —          85,638  
Marketable securities:
                                   
U.S. and foreign commercial paper
     —          28,760        —          28,760  
U.S. and foreign corporate debt securities
     —          23,535        —          23,535  
Asset-backed securities
     —          8,522        —          8,522  
U.S. treasury securities
     —          7,979        —          7,979  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total marketable securities
     —          68,796        —          68,796  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total assets measured at fair value
   $ 85,638      $ 68,796      $ —        $ 154,434  
    
 
 
    
 
 
    
 
 
    
 
 
 
The Company estimates the fair value of its money market funds, corporate debt, asset-backed securities, commercial paper, U.S. treasury securities, U.S agency securities, and supranational debt securities by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities, prepayment/default projections based on historical data, and other observable inputs.
The fair value of the Company’s development financing liability is $71.8 million. The development financing liability is classified as level 3 under the fair value hierarchy, as its valuation is based on a discounted cash flow model that uses unobservable inputs such as the discount rate, estimated timing of regulatory approval and attainment of certain sales milestones.
Cash, Cash Equivalents, and Marketable Securities
The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash and cash equivalents consist of deposits with commercial banks in checking, interest-bearing, and money market funds.
The Company invests excess cash in marketable securities with high credit ratings. These securities consist primarily of corporate debt, commercial paper, asset-backed securities, U.S. treasury securities, and supranational debt securities and are classified as
“available-for-sale.”
The Company considers marketable securities as short-term investments if the maturity date is less than or equal to one year from the balance sheet date. The Company considers marketable securities as long-term investments if the maturity date is in excess of one year from the balance sheet date.
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Realized gains and losses from the sale of marketable securities, if any, are calculated using the specific-identification method. Realized gains and losses and declines in value judged to be other-than-temporary are included in interest income or expense in the condensed consolidated statements of operations and comprehensive loss. Unrealized holding gains and losses are reported in accumulated other comprehensive loss in the condensed consolidated balance sheets. To date, the Company has not recorded any impairment charges on its marketable securities related to other-than-temporary declines in market value. In determining whether a decline in market value is other-than-temporary, various factors are considered, including the cause, duration of time and severity of the impairment, any adverse changes in the investees’ financial condition, and the Company’s intent and ability to hold the security for a period of time sufficient to allow for an anticipated recovery in market value.
Unrealized gains and losses of the Company’s
available-for-sale
marketable securities as of September 30, 2022 and December 31, 2021 are presented in the tables below (in thousands):
 
 
  
Amortized

Cost
 
  
Gross

Unrealized

Gains
 
  
Gross

Unrealized

Losses
 
  
Estimated

Fair Value
 
As of September 30, 2022:
  
     
  
     
  
     
  
     
Cash equivalents:
  
     
  
     
  
     
  
     
Money market funds
   $ 24,208      $ —        $ —        $ 24,208  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total cash equivalents
     24,208        —          —          24,208  
Current marketable securities:
                                   
U.S. and foreign commercial paper
     58,720        —          —          58,720  
U.S. and foreign corporate debt securities
     24,996        —          (315      24,681  
Supranational debt securities
     12,904        —          (90      12,814  
US. agency securities
     3,000        —          (50      2,950  
U.S. treasury securities
     23,678        —          (119      23,559  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total current marketable securities
     123,298        —          (574      122,724  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total marketable securities
   $ 147,506      $ —        $ (574    $ 146,932  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
 
  
Amortized

Cost
 
  
Gross

Unrealized

Gains
 
  
Gross

Unrealized

Losses
 
  
Estimated

Fair Value
 
As of December 31, 2021:
  
     
  
     
  
     
  
     
Cash equivalents:
  
     
  
     
  
     
  
     
Money market funds
   $ 85,638      $ —        $ —        $ 85,638  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total cash equivalents
     85,638        —          —          85,638  
Current marketable securities:
                                   
U.S. and foreign commercial paper
     28,760        —          —          28,760  
U.S. and foreign corporate debt securities
     15,476        —          (8      15,468  
Asset-backed securities
     8,524        —          (2      8,522  
U.S. treasury securities
     7,982        —          (3      7,979  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total current marketable securities
     60,742        —          (13      60,729  
Non-current
marketable securities:
                                   
U.S. corporate debt securities
     8,067        2        (2      8,067  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total marketable securities
   $ 154,447      $ 2      $ (15    $ 154,434  
    
 
 
    
 
 
    
 
 
    
 
 
 
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The following table shows the fair value of the Company’s marketable securities, by contractual maturity, as of September 30, 2022 (in thousands):
 
Due less than 1 year
   $ 122,724  
Due between 1 and 2 years
         
    
 
 
 
Total fair value
   $ 122,724  
    
 
 
 
Concentration of Risk
Cash, cash equivalents, and marketable securities consist of financial instruments that potentially subject the Company to a concentration of credit risk to the extent of the fair value recorded on the balance sheet. The Company invests cash that is not required for immediate operating needs primarily in highly liquid instruments that bear minimal risk. The Company has established guidelines relating to the quality, diversification, and maturities of securities to enable the Company to manage its credit risk. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents and investments and issuers of investments to the extent recorded on the condensed consolidated balance sheets.
Certain materials and key components that the Company utilizes in its operations are obtained through single suppliers. Since the suppliers of key components and materials must be named in a new drug application NDA filed with the FDA for a product, significant delays can occur if the qualification of a new supplier is required. If delivery of material from the Company’s suppliers were interrupted for any reason, the Company may be unable to supply any of its product candidates for clinical trials.
Other Risks and Uncertainties
In March 2020, the World Health Organization declared the global novel coronavirus disease
(COVID-19)
outbreak a pandemic. To date, the Company’s operations have not been significantly impacted by the
COVID-19
outbreak. However, the Company continues to monitor potential risks and uncertainties associated with operating its business during the pandemic. These risks include, but are not limited to, government advisories and restrictions on travel and workplace access, workforce shortages, and global supply chain delays, all of which could potentially impact the Company’s ability to conduct its critical drug development and regulatory compliance activities. The Company cannot predict the specific extent, duration, or full impact that the
COVID-19
outbreak will have on its consolidated financial condition and operations. The impact of the
COVID-19
coronavirus outbreak on the financial performance of the Company will depend on future developments, including the duration and spread of the outbreak and related governmental advisories and restrictions. These developments and the impact of
COVID-19
on the financial markets and the overall economy are highly uncertain. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s results may be adversely affected.
Research and Development Expenses
Research and development expenses consist of costs incurred in identifying, developing, and testing product candidates. These expenses consist primarily of costs for research and development personnel, including related stock-based compensation; contract research organizations (CRO) and other third parties that assist in managing, monitoring, and analyzing clinical trials; investigator and site fees; laboratory services; consultants; contract manufacturing services;
non-clinical
studies, including materials; and allocated expenses, such as depreciation of assets, and facilities and information technology that support research and development activities. Research and development costs are expensed as incurred, including expenses that may or may not be reimbursed under research and development funding arrangements. Payments made prior to the receipt of goods or services to be used in research and development are recorded as prepaid assets until the goods are received or services are rendered. Such payments are evaluated for current or long-term classification based on when they will be realized. Additionally, if expectations change such that the Company does not expect goods to be delivered or services to be rendered, such prepayments are charged to expense.
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Table of Contents
The Company records expenses related to clinical studies and manufacturing development activities based on its estimates of the services received and efforts expended pursuant to contracts with multiple CROs and manufacturing vendors that conduct and manage these activities on its behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in uneven payment flows. There may be instances in which payments made to the Company’s vendors will exceed the level of services provided and result in a prepayment. Payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical trial milestones. In amortizing or accruing service fees, the Company estimates the time period over which services will be performed, enrollment of subjects, number of sites activated and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the Company’s estimate, the Company will adjust the accrued or prepaid expense balance accordingly. To date, there have been no material differences from the Company’s estimates to the amounts actually incurred.
Development Financing Agreement
The Company accounts for the Financing Agreement (see Note 4) as a debt instrument. Accordingly, the Company has recorded payments received under the Financing Agreement as part of a development financing liability in the Company’s condensed consolidated balance sheet. The liability is recorded at amortized cost and accreted to the contractual success fee amounts based on the estimated timing of regulatory approval and attainment of certain sales milestones using an imputed interest rate. Certain transaction fees incurred specifically to complete the Financing Agreement were capitalized and recorded as a reduction to the carrying amount of the development financing liability and are being amortized to interest expense using the effective interest rate method.
There are several factors that could affect the estimated timing of regulatory approval and attainment of sales milestones, some of which are not entirely within the Company’s control. Therefore, at each reporting date, the Company reassesses the estimated timing of regulatory approval and attainment of sales milestones and the expected contractual success fee payments due therefrom. If the timing and/or amount of such expected payments is materially different than original estimates, the Company will prospectively adjust the accretion of the development financing liability and the imputed interest rate.
The Company identified certain contingent repayment features in the Financing Agreement that are required to be bifurcated from the debt host instrument as embedded derivative liabilities; however, the Company determined the fair value of these features, both individually and in the aggregate, was immaterial at inception and as of September 30, 2022. The fair value of these features will be assessed at each reporting date and will be marked to market, if material. To determine the amount to record for the embedded derivative liabilities, the Company must assess the probability of occurrence of various potential future events that could affect the timing and/or amount of future cash flows related to the Financing Agreement.
Stock-Based Compensation
Stock-based compensation is measured at fair value on the grant date of the award. Compensation cost is recognized as expense on a straight-line basis over the vesting period for options with service conditions, and forfeitures are accounted for as they occur. The Company uses the Black-Scholes option pricing model to determine the fair value of stock option awards. The determination of fair value for stock-based awards using an option-pricing model requires management to make certain assumptions regarding subjective input variables such as expected term, dividends, volatility and risk-free rate. If actual results are not consistent with the Company’s assumptions and judgments used in making these estimates, the Company may be required to increase or decrease compensation expense, which could be material to the Company’s results of operations.
Recently Issued Accounting Pronouncements
ASU
2020-06
In August 2020, the FASB issued ASU
2020-06,
Debt—
Debt with Conversion and Other Options (Subtopic
470-20)
and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40):
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
, which amends the guidance for accounting for certain financial instruments with characteristics of liabilities and equity. The new guidance simplifies aspects of the accounting for convertible debt instruments and convertible preferred stock by limiting the number of accounting models, which results in fewer embedded conversion features being separately recognized from the host contract as compared with previous GAAP. The guidance is effective for the Company beginning January 1, 2024, and early adoption is permitted. The Company is currently assessing the impact of this standard on its condensed consolidated financial statements and related disclosures.
ASU
2016-13
In June 2016, the FASB issued ASU
No. 2016-13,
Financial Instruments—Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments
, an amendment which modifies the measurement and recognition of credit losses for most financial

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assets and certain other instruments. The amendment updates the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented at the net amount expected to be collected. The amendment also requires that credit losses related to
available-for-sale
debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. In November 2019, FASB issued ASU
No. 2019-10,
Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842), which deferred the adoption deadline for smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, and entities are required to use a modified retrospective approach, with certain exceptions. The Company is currently assessing this standard and does not anticipate a material impact to its condensed consolidated financial statements and related disclosures.​​​​​​​
3. Other Accrued Liabilities
Other accrued liabilities consist of (in thousands):
 
    
September 30, 2022
    
December 31, 2021
 
Accrued compensation
   $ 4,022      $ 3,986  
Accrued professional fees and other
     949        1,333  
Current portion of operating lease liability
     639        567  
    
 
 
    
 
 
 
Total other accrued liabilities
   $ 5,610      $ 5,886  
    
 
 
    
 
 
 
4. Development Financing Agreement
On July 30, 2021 (the Effective Date), the Company entered into a Development Financing Agreement (the Financing Agreement) with
an affiliate of 
Abingworth
LLP (Abingworth) 
to provide funding to the Company to support its development of seladelpar for the treatment of primary biliary cholangitis (PBC). The Financing Agreement provides the Company up to $100.0 million in funding, of which $25.0 million was provided in August 2021, $25.0 million was provided in November 2021, and $25.0 million was provided in January 2022. The use of proceeds from the funding is limited to PBC “Development Program” costs incurred or paid as defined in the Financing Agreement. In return, the Company will pay to Abingworth:
(1) contingent upon the first to occur of regulatory approval of seladelpar for the treatment of PBC in the U.S., U.K., Germany, Spain, Italy or France (Regulatory Approval), fixed success payments equal to 2.0x of the funding provided, consisting of $10 million payable within 90 days after the Regulatory Approval and thereafter, payments due on the first six anniversaries of the Regulatory Approval in the amounts of $15.0 million, $22.5 million, $22.5 million, $25.0 million, $27.5 million and $27.5 million, respectively and
(2) variable success payments equal to 1.1x of the funding provided, consisting of sales milestone payments of (x) $17.5 million and $27.5 million, respectively upon first reaching certain cumulative U.S. product sales thresholds, and (y) $37.5 million upon first reaching a specified U.S. product sales run rate.
Promptly following receipt of Regulatory Approval, the Company is required to execute a note agreement and deliver a promissory note to Abingworth within two business days to convert the fixed and variable success payments into a note payable. At the time that Abingworth receives, collectively, an aggregate of 3.1x of the funding provided (approximately $232.5 million), the Company’s payment obligations under the Financing Agreement will be fully satisfied. The Company has the option to satisfy its payment obligations to Abingworth upon Regulatory Approval, or a change of control of the Company, by paying an amount equal to the remaining payments payable to Abingworth subject to a
mid-single-digit
discount rate. Upon a change of control of the Company, an acceleration payment of 1.35x of the funding provided is payable, net of payments already made to Abingworth and creditable against future payments to Abingworth.
Pursuant to the Financing Agreement, the Company granted Abingworth a security interest in all its assets (other than intellectual property not related to seladelpar), provided that the Company is permitted to incur certain indebtedness. The security interest will terminate when the Company has paid Abingworth 2.0x of the funding provided or upon certain terminations of the Financing Agreement.
The Company had an option to receive an additional $25 million (the Optional Funding) within approximately two months of enrollment completion of the Company’s Phase 3 RESPONSE clinical trial. The Company did not exercise the Optional Funding
 
and the option has expired
.

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The Financing Agreement provides for negative, affirmative and additional covenants, which the Company must comply with for the duration of the Financing Agreement term. As of September 30, 2022, the Company was in compliance with all covenants stipulated in the Financing Agreement.
In certain instances, upon the termination of the Financing Agreement, the Company will be obligated to pay Abingworth a multiple of the amounts paid to the Company under the Financing Agreement, including specifically:
(i) 310% of such amounts in the event that Abingworth terminates the Financing Agreement due to (x) a Fundamental Breach, as defined in the Financing Agreement, (y) the bankruptcy of the Company, or (z) a safety concern resulting from gross negligence on the part of the Company or due to a safety concern that was material on the Effective Date and the material data showing such safety concern was not publicly known, disclosed to Abingworth, or in the diligence room made available to Abingworth,
(ii) 200% of such amounts in the event the Financing Agreement is terminated due to (x) Material Breach, as defined in the Financing Agreement, by the Company or (y) the security interests of Abingworth being invalidated or terminated other than as set forth in the Financing Agreement, and
(iii) 100% of such amounts in the event of certain irresolvable disagreements within the executive review committee overseeing the Company’s development of seladelpar.
In addition, if, following certain terminations, the Company continues to develop seladelpar for the treatment of PBC and obtains regulatory approval, it will make the payments to Abingworth as if the Financing Agreement had not been terminated, less any payments made upon termination.
The Company shall not be obligated to make any payments to Abingworth under certain instances of technical or regulatory failure of the PBC development program as defined in the Financing Agreement.
As part of the arrangement, an executive review committee was established between the Company and Abingworth to discuss the Company’s development of seladelpar.
The Company evaluated the Financing Agreement and determined it to be a research and development funding arrangement with the characteristics of a debt instrument, as the transfer of financial risk to Abingworth was not considered substantive and genuine. Accordingly, the Company has recorded payments received under the Financing Agreement as part of a development financing liability in its condensed consolidated balance sheets. The Company accounts for the overall development financing liability at amortized cost based on the estimated timing of regulatory approval and attainment of certain sales milestones and the contractual success fee payments expected to be due therefrom, as discounted using an imputed interest rate. The development financing liability will be accreted as interest expense to its expected future repayment amount over the expected life of the agreement using the effective interest rate method. Certain legal and financial advisory fees incurred specifically to complete the Financing Agreement were capitalized and recorded as a reduction to the carrying amount of the development financing liability and will also be amortized to interest expense using the effective interest method.
There are several factors that could affect the estimated timing of regulatory approval and attainment of sales milestones, some of which are not entirely within the Company’s control. Therefore, at each reporting date, the Company reassesses the estimated timing of regulatory approval and attainment of sales milestones and the expected contractual success fee payments due therefrom. If the timing and/or amount of such expected payments is materially different than original estimates, the Company will prospectively adjust the accretion of the development financing liability and the imputed interest rate.
The Company identified certain contingent repayment features in the agreement that are required to be bifurcated from the debt host instrument as embedded derivative liabilities; however, the fair value of these features was immaterial at the Effective Date and as of September 30, 2022. The fair value of the embedded derivative liabilities will be assessed at subsequent reporting dates if material.
As of September 30, 2022, the development financing liability was classified as a long-term liability, as the Company expects the related repayments to take place between 2024 and 2030 for purposes of the model used to calculate its carrying value. The imputed interest rate on the unamortized portion of the development financing liability was approximately 18.5% as of September 30, 2022.

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5. Stockholders’ Equity
Preferred and Common Stock Authorized
The Company is authorized to issue 10,000,000 shares of preferred stock and 200,000,000 shares of common stock as of September 30, 2022 and December 31, 2021.

Sale of Common Stock and Prefunded Warrants
Pursuant to the Company’s public equity offering completed in November 2021, the Company issued
pre-funded
warrants to purchase 3,125,000 shares of common stock at a price of $3.9999 per share. These
pre-funded
warrants have an exercise price of $0.0001 per share, were fully exercisable upon issuance, and have no expiration date. A holder will not be entitled to exercise any portion of any
pre-funded
warrant if the holder’s ownership of the Company’s common stock would exceed 4.99% to 14.99% following such exercise. The Company determined that the
pre-funded
warrants should be equity classified because they are freestanding financial instruments, are immediately exercisable, do not embody an obligation for the Company to repurchase its shares, permit the holders to receive a fixed number of shares of common stock upon exercise, are indexed to the Company’s common stock and meet the equity classification criteria. In addition, such
pre-funded
warrants do not provide any guarantee of value or return. Accordingly, the proceeds from the issuance of the warrants were recorded as additional
paid-in
capital on the Company’s condensed consolidated balance sheet as of September 30, 2022.
None of the
pre-funded
warrants were exercised since they were issued in November 2021, and therefore remain outstanding as of September 30, 2022.
At-the-Market
(ATM) Facility
In July 2020, the Company filed a $200.0 million registration statement on Form
S-3
with the SEC and entered into an
at-the-market
facility (ATM) to sell up to $75.0 million of common stock under the registration statement. To date, the Company has not sold any shares of common stock under the ATM.
6. Net Loss Per Common Share
Basic net loss per share of common stock is based on the weighted-average number of shares of common stock equivalents outstanding during the period.
Pre-funded
warrants to purchase 3,125,000 shares of common stock were included in the weighted-average common stock share equivalents outstanding for the three and nine months ended September 30, 2022.
In all periods presented, the Company’s outstanding stock options were excluded from the calculation of net loss per share because their effect would be antidilutive. The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per share amounts):​​​​​​​​​​​​​​

 
  
Three Months Ended
September 30,
 
  
Nine Months Ended
September 30,
 
 
  
2022
 
  
2021
 
  
2022
 
  
2021
 
Numerator:
  
     
  
     
  
     
  
     
Net loss
   $ (24,505    $ (22,682    $ (79,368    $ (63,455
Denominator:
                                   
Weighted average number of:
                                   
Common stock shares outstanding
     84,679,272        69,022,937        84,678,388        68,985,112  
Pre-funded
warrants outstanding
     3,125,000                  3,125,000            
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
     87,804,272        69,022,937        87,803,388        68,985,112  
Net loss per share
   $ (0.28    $ (0.33    $ (0.90    $ (0.92
The following table shows the total outstanding securities considered anti-dilutive and therefore excluded from the computation of net loss per share (in thousands):

 
  
Three Months Ended
September 30,
 
  
Nine Months Ended
September 30,
 
 
  
2022
 
  
2021
 
  
2022
 
  
2021
 
Common stock options
     13,960        10,704        13,960        10,704  
Incentive awards
     101        101        101        101  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
     14,061        10,805        14,061        10,805  
    
 
 
    
 
 
    
 
 
    
 
 
 

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7. Stock Plans and Stock-Based Compensation
Stock Plans
As of September 30, 2022, there were 2,650,362 shares a
vailable for future grants under the Company’s 2013 Equity Incentive Plan and no shares available for grant under the Company’s 2020 New Hire Plan. On January 1, 2022, in accordance with the annual share increase provision in the 2013 Plan, the Company added 4,233,896 shares to the 2013 Plan share reserve. During the three and nine months ended September 30, 2022, the Company granted 38,600 and 3,662,868 stock options, respectively, which primarily related to its option grants issued to employees
and directors.
Stock-Based Compensation Expense
Stock-based compensation expense is included in the condensed consolidated statements of operations and comprehensive loss and is as follows (in thousands):
 
 
  
Three Months Ended

September 30,
 
  
Nine Months Ended

September 30,
 
 
  
2022
 
  
2021
 
  
2022
 
  
2021
 
Research and development
  
$
1,052
 
  
$
1,115
 
  
$
3,220
 
  
$
3,343
 
General and administrative
  
 
1,298
 
  
 
1,434
 
  
 
3,936
 
  
 
4,268
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Total stock-based compensation expense
  
$
2,350
 
  
$
2,549
 
  
$
7,156
 
  
$
7,611
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
8. Commitments and Contingencies
Genfit Litigation
On January 15, 2021, Genfit S.A. (Genfit) filed a complaint against the Company in the U.S. District Court for the Northern District of California, alleging misappropriation of trade secrets and related causes of action based on the Company’s receipt of a Genfit protocol synopsis for Genfit’s Phase 3 clinical trial of its drug candidate elafibranor in patients with primary biliary cholangitis. An Amended Complaint was filed on April 16, 2021 with substantially the same allegations. Genfit seeks damages in an unspecified amount as well as injunctive relief. On March 12, 2021, the Court granted a Temporary Restraining Order (later converted to a Preliminary Injunction), prohibiting the Company from accessing or disseminating the protocol synopsis, using any Genfit trade secrets contained therein or destroying any evidence related thereto. The Company filed a Motion to Dismiss the Amended Complaint that was granted on September 9, 2021, with leave to amend. Genfit filed a Second Amended Complaint on October 15, 2021 with substantially the same allegations and claims for relief as in the original complaint. The Company filed a Motion to Dismiss most of the Second Amended Complaint that was granted on January 21, 2022, without further leave to amend. What remains in the complaint is an alleged misappropriation of the protocol synopsis as a whole. The Company filed its Answer to what remained of the Second Amended Complaint on February 4, 2022. The Company intends to defend itself vigorously. While the outcome of any litigation is inherently uncertain, based on currently available information, management does not currently believe a loss associated with this matter is probable, nor is any amount reasonably estimable, and accordingly no amounts have been recorded or disclosed.
 
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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of results that may occur in future interim periods or for the full fiscal year.

This Quarterly Report on Form 10-Q contains statements indicating expectations about future performance and other forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act, that involve risks and uncertainties. Words such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “potential,” “seek,” “target,” “goal,” “intend,” variations of such words, and similar expressions are intended to identify forward-looking statements. These statements appear throughout this Quarterly Report on Form 10-Q and are statements regarding our current expectation, belief, or intent, primarily with respect to our operations and related industry developments. Examples of these statements include, but are not limited to, statements regarding our expectations with respect to the following: our business and scientific strategies; the progress of our product development programs and the timing of results; regulatory submissions and approvals; the impact of the COVID-19 pandemic on our company and operations; our drug discovery technologies; our research and development expenses; protection of our intellectual property; sufficiency of our cash and capital resources and the need for additional capital; and our operations and legal risks. You should not place undue reliance on these forward-looking statements. Our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements for many reasons. Factors that might cause such a difference include those discussed under the caption “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. These and many other factors could affect our future financial and operating results. We undertake no obligation to update any forward-looking statement to reflect events after the date of this Quarterly Report. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into or review of all relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely on these statements.

Overview

CymaBay Therapeutics, Inc. is a clinical-stage biopharmaceutical company focused on developing and providing access to innovative therapies for patients with liver and other chronic diseases with high unmet medical need.

Our lead product candidate, seladelpar, is a potent and selective agonist of peroxisome proliferator activated receptor delta (PPARd), a nuclear receptor that regulates genes directly or indirectly involved in the synthesis of bile acids/sterols, metabolism of lipids and glucose, inflammation, and fibrosis. We have been focused on developing seladelpar for the treatment of primary biliary cholangitis (PBC), an autoimmune disease that causes progressive destruction of the bile ducts in the liver resulting in impaired bile flow (cholestasis) and inflammation.

Seladelpar—Primary Biliary Cholangitis (PBC)

In late 2020, we commenced startup and site feasibility activities for RESPONSE, a global Phase 3 registration study to evaluate seladelpar in patients with PBC. The RESPONSE trial completed enrollment in July 2022 with a total of 193 subjects enrolled in the trial. The RESPONSE trial is a double-blind, randomized, placebo-controlled, 52-week study to evaluate the safety and efficacy of 10 mg of seladelpar versus placebo in patients with PBC who have had an inadequate response to UDCA (defined as a serum alkaline phosphatase level ≥ 1.67 x the upper limit of normal after at least 12 months of treatment) or an intolerance to UDCA to be eligible for the trial. The primary efficacy outcome measure will be the responder rate at 52 weeks in the seladelpar 10 mg group compared to placebo. A responder is defined as a patient who achieves an alkaline phosphatase level < 1.67 x the upper limit of normal with at least a 15% decrease from baseline and has a normal level of total bilirubin. Key secondary outcome measures will include evaluating the effect of seladelpar compared to placebo on normalization of alkaline phosphatase at 52 weeks and on pruritus at 6-months for patients with moderate to severe pruritus at baseline assessed by a numerical rating scale recorded with an electronic diary.

In addition to RESPONSE, we also commenced startup activities in late 2020 for ASSURE, a long-term extension study, which is open to patients who were eligible for our previous long-term extension study that was terminated early in late 2019, including those patients from our previously completed Phase 2 open label study and our Phase 3 ENHANCE study, as well as patients who complete treatment in RESPONSE. The ASSURE trial is continuing to enroll eligible patients and currently has over 180 subjects enrolled. The ASSURE trial is an open-label, long-term study intended to collect additional long-term safety and efficacy data to support registration.

 

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MBX-2982

MBX-2982 targets G protein-coupled receptor 119 (GPR119), a receptor that interacts with bioactive lipids known to stimulate glucose-dependent insulin secretion. In November 2020, we announced a Phase 2a proof-of-pharmacology study to assess whether MBX-2982 can enhance glucagon secretion during insulin-induced hypoglycemia in subjects with T1D. The study is actively enrolling patients. If successful, studies to evaluate MBX-2982 as a potential preventive therapy for hypoglycemia in patients with T1D may be warranted. The study is being led by the AdventHealth Translational Research Institute in Orlando, Florida and is fully funded by The Leona M. and Harry B. Helmsley Charitable Trust. CymaBay retains full commercial rights to MBX-2982. We believe MBX-2982 may also have utility in various inflammatory diseases and we are currently exploring potential opportunities to advance development.

CB-0406

In 2020 we began to evaluate CB-0406, the active metabolite of arhalofenate in a single and multiple ascending dose study in healthy subjects to establish its pharmacokinetics, safety and maximum tolerated dose. While the study showed CB-0406 had improved pharmacokinetics versus arhalofenate, CB-0406’s safety profile did not support continued development as a result of the occurrence of a small number of reversible cases of thrombocytopenia at higher doses. Therefore, in mid-2021 we discontinued development of CB-0406.

COVID-19 Pandemic

As a result of the COVID-19 pandemic, we have experienced and may continue to experience disruptions that could impact aspects of our business, including our progress towards the initiation and completion of certain clinical trials, and other associated drug development activities. The emergence of COVID-19 variants, have disrupted, and may continue to disrupt, aspects of our business, in particular in regard to the initiation and operation of clinical trial sites in portions of the United States, in the U.K. and in Europe. Possible future disruptions are currently difficult to foresee. We continue to monitor areas of potential risk which include, but are not limited to, the following:

 

   

Clinical trial and drug manufacturing operations—In collaboration with our clinical research organization partners, we sponsor clinical trials that take place at investigator sites in the U.S. and internationally. We also partner with contract manufacturing organizations to develop, manufacture, and distribute our product candidate drug supplies. To date, these collective research and development personnel and vendors have adapted to COVID-19 related travel restrictions and reduced access to work facilities through the use of remote working technologies and other measures as they continue to progress toward completion of our clinical trials. Although we and our contractors continue to plan for and develop pandemic-related risk mitigation strategies, it is uncertain whether these plans will continue to be sufficient to fully offset the potential impact COVID-19 may have on our ability to execute our development activities in a timely and cost-effective manner.

 

   

Drug regulator interactions—The FDA and comparable foreign regulatory agencies may experience operational interruptions or delays, which could impact timelines for regulatory meetings, submissions, trial initiations, and regulatory approvals.

 

   

Financial reporting and compliance—To date, there has been no adverse impact on our ability to maintain our established financial reporting functions and internal controls over financial reporting. However, our ability to prepare our financial results timely and accurately is partially dependent upon the availability of third-party information systems and other cloud-based services.

 

   

Remote workforce operations—To date, our workforce has adapted to remotely working to maintain operations. Our operations are currently in a hybrid model with most employees working from our office for a portion of the week and working remotely for the rest of the week. Our continued use of partially-remote operations, however, could increase our cyber-security risk, create data accessibility concerns, and make us more susceptible to communication disruptions, any of which could adversely impact our business operations, or delay necessary interactions with regulators, contract manufacturers, contract research organizations, clinical trial sites, and other important agencies and contractors, which may result in increased costs to us.

Overall, we cannot at this time predict the specific extent, duration, or full impact that the continuing COVID-19 pandemic will have on our future consolidated financial condition and operations. The impact of the COVID-19 pandemic on our consolidated financial performance will depend on future developments, including emergence of COVID-19 variants, the duration and spread of the pandemic and related governmental advisories and restrictions, which could result in unexpected costs to us. These developments and the impact of COVID-19 on the financial markets and the overall economy are highly uncertain. If the financial markets and/or the overall economy are impacted for an extended period, our results may be adversely affected.

 

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Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements, as well as the reported revenues

 

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and expenses during the reporting periods. We base our estimates on historical experience and on various other factors which we believe to be materially reasonable under the circumstances, the results of which form our basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources, and evaluate our estimates on an ongoing basis. Actual results may materially differ from those estimates under different assumptions or conditions.

There have been no changes to our critical accounting policies since we filed our Annual Report on Form 10-K for the year ended December 31, 2021 with the SEC on March 17, 2022. For a description of our critical accounting policies and estimates, please refer to our Annual Report on Form 10-K.

Recent Accounting Pronouncements

Refer to Note 2—Summary of Significant Accounting Policies in the notes to our unaudited interim condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, for a discussion of recent accounting pronouncements.

Results of Operations

General

To date, we have not generated any income from operations. As of September 30, 2022, we have an accumulated deficit of $846.2 million, primarily as a result of expenditures for research and development, general and administrative and interest expenses from inception to that date. All of our product candidates are at various stages of development and will require additional work and regulatory approval before they can be licensed or commercialized. Accordingly, we expect to continue to incur substantial losses from operations for the foreseeable future and there can be no assurance that we will ever generate sufficient revenue to achieve and sustain profitability. Until we can generate sufficient product revenue, which we may never do, we will need to finance future cash needs through potential collaborative, partnering or other strategic arrangements, as well as through equity offerings, debt financings or a combination of the foregoing.

Operating Results

Our results of operations for the three and nine months ended September 30, 2022 and 2021 are presented below (in thousands):

 

     Three Months Ended
September 30,
   

Change

Q3

    Nine Months Ended
September 30,
   

Change

Q3 YTD

 
     2022     2021     2022 vs. 2021     2022     2021     2022 vs 2021  

($ in thousands)

            

Operating expenses:

            

Research and development

   $ 15,459     $ 17,010     $ (1,551   $ 51,765     $ 46,137     $ 5,628  

General and administrative

     5,904       5,179       725       17,869       16,936       933  
  

 

 

   

 

 

     

 

 

   

 

 

   

Total operating expenses

     21,363       22,189       (826     69,634       63,073       6,561  
  

 

 

   

 

 

     

 

 

   

 

 

   

Loss from operations

     (21,363     (22,189     826       (69,634     (63,073     (6,561

Other income (expense), net:

            

Interest income

     677       29       648       1,098       140       958  

Interest expense

     (3,819     (522     (3,297     (10,832     (522     (10,310

Total other income (expense), net

     (3,142     (493     (2,649     (9,734     (382     (9,352
  

 

 

   

 

 

     

 

 

   

 

 

   

Net loss

   $ (24,505   $ (22,682   $ (1,823   $ (79,368   $ (63,455   $ (15,913
  

 

 

   

 

 

     

 

 

   

 

 

   

Research & Development Expenses

Conducting research and development is central to our business model. Research and development expenses decreased $1.6 million to $15.5 million from $17.0 million for the three months ended September 30, 2022 and 2021, respectively. This decrease was due to a reduction in clinical activity due to the completion of enrollment of our clinical trial RESPONSE. Research and development expenses increased $5.6 million to $51.8 million from $46.1 million for the nine months ended September 30, 2022 and 2021, respectively. This increase was largely due to activities associated with the development of seladelpar focusing primarily on our late-stage PBC program. We expect that our research and development expenses will increase in the future due to costs associated with our ongoing late-stage development of seladelpar.

 

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Research and development expenses are detailed further in the table below (in thousands):

 

     Three Months Ended
September 30,
    

Change

Q3

    Nine Months Ended
September 30,
    

Change

Q3 YTD

 
     2022      2021      2022 vs 2021     2022      2021      2022 vs. 2021  

Project costs:

                

Seladelpar PBC clinical studies

   $ 7,955      $ 10,180      $ (2,225   $ 26,998      $ 25,050      $ 1,948  

Seladelpar drug manufacturing & development

     1,227        1,530        (303     5,160        3,675        1,485  

Seladelpar and non-seladelpar other studies

     48        371        (323     434        2,779        (2,345
  

 

 

    

 

 

      

 

 

    

 

 

    

Total project costs

     9,230        12,081        (2,851     32,592        31,504        1,088  

Internal research and development costs

     6,229        4,929        1,300       19,173        14,633        4,540  
  

 

 

    

 

 

      

 

 

    

 

 

    

Total research and development

   $ 15,459      $ 17,010      $ (1,551   $ 51,765      $ 46,137      $ 5,628  
  

 

 

    

 

 

      

 

 

    

 

 

    

Our project costs consist primarily of:

 

   

expenses incurred under agreements with contract research organizations, investigative sites and consultants that conduct our clinical trials and a substantial portion of our preclinical activities;

 

   

the cost of acquiring materials and manufacturing any product for use in clinical trial and other research activities; and

 

   

other costs associated with development activities, including additional studies.

Internal research and development costs consist primarily of salaries and related fringe benefits costs for our employees (such as workers’ compensation and health insurance premiums), stock-based compensation charges, travel costs, and overhead expenses. Internal costs generally benefit multiple projects and are not separately tracked per project.

Comparison of the three months ended September 30, 2022 and 2021

Total project costs decreased $2.9 million to $9.2 million from $12.1 million for the three months ended September 30, 2022 and 2021, respectively. The decrease was mostly due to the completion of enrollment of our RESPONSE trial during the three months ended September 30, 2022. Project costs for the three months ended September 30, 2022 and 2021 primarily consisted of seladelpar-related clinical trial expenses for PBC. Internal research and development costs increased by $1.3 million to $6.2 million from $4.9 million for the three months ended September 30, 2022 and 2021, respectively, primarily due to higher employee compensation incurred in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, as we continued to hire additional research and development personnel to support our clinical studies. As we continue to progress late-stage development of seladelpar in PBC as well as development activities associated with other product candidates, we expect both total project and internal costs to increase in the future.

Comparison of the nine months ended September 30, 2022 and 2021

Total project costs increased by $1.1 million to $32.6 million from $31.5 million for the nine months ended September 30, 2022 and 2021, respectively. Project costs for the nine months ended September 30, 2022 and 2021 primarily consisted of seladelpar-related clinical trial expenses for PBC. These cost increases were primarily driven by an expansion of our site activation, patient enrollment efforts, and other clinical trial activities. Internal research and development costs increased by $4.5 million to $19.2 million from $14.6 million for the nine months ended September 30, 2022 and 2021, respectively, primarily due to higher employee compensation incurred in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, as we continued to hire additional research and development personnel to support our clinical studies.

General and Administrative Expenses

General and administrative expenses consist principally of personnel-related costs, professional fees for legal, consulting, and accounting services, rent, and other general operating expenses not otherwise included in research and development.

Comparison of the three months ended September 30, 2022 and 2021

General and administrative expenses increased by $0.7 million to $5.9 million from $5.2 million for the three months ended September 30, 2022 and 2021, respectively. The increase was driven primarily by an increase in in headcount in general and administrative personnel in the three months ended September 30, 2022 when compared to three months ended September 30, 2021,

 

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as we continue to add administrative personnel and expand our infrastructure in support of our drug development activities. We expect general and administrative expenses to increase in the future as we continue to add administrative personnel and expand our infrastructure in support of our drug development activities.

Comparison of the nine months ended September 30, 2022 and 2021

General and administrative expenses increased by $0.9 million to $17.9 million from $16.9 million for the nine months ended September 30, 2022 and 2021, respectively. The increase was driven primarily by an increase in headcount in general and administrative personnel in the nine months ended September 30, 2022, as we continue to add administrative personnel and expand our infrastructure in support of our drug development activities, partially offset by a reduction in legal and outside consulting-related expenses.

Other Income (Expense), Net

Interest income increased $0.6 million to $0.7 million from an immaterial amount for the three months ended September 30, 2022 and 2021, respectively. Interest income increased $1.0 million to $1.1 million from $0.1 million for the nine months ended September 30, 2022 and 2021, respectively. The increase in interest income was driven primarily by a higher investment portfolio balance compared to the prior year period due to funds that had been received related to our Development Financing Arrangement and November 2021 equity financing.

Interest expense is related to the accretion of the development financing liability recorded in connection with the July 2021 Abingworth Development Financing Agreement using the effective interest method, and increased $3.3 million to $3.8 million from $0.5 million for the three months ended September 30, 2022 and 2021, respectively. The increase in interest expense was driven primarily by an increase in the payments received under the development financing agreement comparatively between periods. Interest expense increased $10.3 million to $10.8 million from $0.5 million for the nine months ended September 30, 2022 and 2021, respectively. The increase was driven primarily by a greater amount of time during which interest was accrued and payments received under the development financing agreement.

Liquidity and Capital Resources

We have financed our operations primarily through the sale of equity securities, licensing fees, issuance of debt and collaborations with third parties. At September 30, 2022, cash, cash equivalents and marketable securities totaled $153.4 million, compared to $194.6 million at December 31, 2021.

Development Financing

On July 30, 2021, (the Effective Date) we entered into a Development Financing Agreement (the Financing Agreement) with Abingworth to obtain funding to support our development of seladelpar for the treatment of PBC. The Financing Agreement provides us up to $100.0 million in funding, of which $25 million was received in August 2021, $25 million was received in November 2021 and $25 million was received in January 2022. In return, we will pay to Abingworth fixed and variable success payments, as further described in Note 4—Development Financing Agreement in the notes to our consolidated financial statements. We had an option to receive an additional $25 million within approximately two months of enrollment completion of our Phase 3 RESPONSE clinical trial; however, we did not exercise the option to receive this additional funding.

At-the-Market (ATM) Facility

In July 2020, we filed a $200.0 million registration statement on Form S-3 with the SEC and entered into an at-the-market facility (ATM) to sell up to $75.0 million of common stock under the registration statement. To date, we have not sold any shares of common stock under the ATM.

 

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Cash Flows

The following table sets forth a summary of the net cash flow activity for each of the periods indicated below (in thousands):

 

     Nine Months Ended
September 30,
 
     2022      2021  

Net cash used in operating activities

   $ (65,324    $ (55,188

Net cash (used in) provided by investing activities

     (54,341      72,666  

Net cash provided by financing activities

     24,550        23,292  
  

 

 

    

 

 

 

Net (decrease) increase in cash and cash equivalents

   $ (95,115    $ 40,770  
  

 

 

    

 

 

 

Operating Activities: Net cash used in operating activities for the nine months ended September 30, 2022 increased by $10.1 million to $65.3 million as compared to $55.2 million for the same period in the prior year, primarily due to an increase in our net loss to $79.4 million from $63.5 million in the comparable prior year period due to the expansion of late-stage clinical trial activities related to the seladelpar development program. In addition, cash was used to fund changes in our working capital due to timing of payments.

Investing Activities: Net cash used in investing activities was $54.3 million for the nine months ended September 30, 2022, compared to $72.7 million provided by investing activities for the same period in the prior year, primarily due to the timing of our investments and maturities of marketable securities and portfolio risk management.

Financing Activities: Net cash provided by financing activities was $24.6 million for the nine months ended September 30, 2022, which mostly consisted of a $25.0 million funding payment received from Abingworth under the Development Financing Agreement, which was partially offset by $0.5 million of issuance costs paid for the issuance of common stock from the November 2021 equity financing.

Capital Requirements

We have incurred operating losses since inception and had an accumulated deficit of $846.2 million at September 30, 2022. As of September 30, 2022, we had cash, cash equivalents and marketable securities of approximately $153.4 million, which we believe is sufficient to fund our current operating plan through 2023.

We expect to continue to incur substantial expenses related to our development activities for the foreseeable future as we continue product development for seladelpar. Since product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later stage clinical trials, we expect that our research and development expenses will increase in the future. We will therefore continue to require additional financing to develop our products and fund future operating losses and will seek funds through equity financings, debt, collaborative or other arrangements with corporate sources, or through other sources of financing. It is unclear if or when any such financing transactions will occur, on satisfactory terms or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. If adequate funds are not available to us, it could have a material adverse effect on our business, results of operations, and financial condition.

 

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Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable to Smaller Reporting Companies.

 

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation as of September 30, 2022 under the supervision and with the participation of our management, including our President and Chief Executive Officer and Vice President, Finance, of the effectiveness of our “disclosure controls and procedures,” which are defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as controls and other procedures of a company that are designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer and Vice President, Finance, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, our President and Chief Executive Officer and Vice President, Finance concluded that our disclosure controls and procedures were effective as of September 30, 2022.

Limitations on the Effectiveness of Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the controls are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our President and Chief Executive Officer and Vice President, Finance have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were sufficiently effective to provide reasonable assurance that the objectives of our disclosure control system were met.

Changes in Internal Controls

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working in a hybrid remote model due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

 

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PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

On January 15, 2021, Genfit S.A. (Genfit) filed a complaint against us in the U.S. District Court for the Northern District of California, alleging misappropriation of trade secrets and related causes of action based on our receipt of a Genfit protocol synopsis for Genfit’s Phase 3 clinical trial of its drug candidate elafibranor in patients with primary biliary cholangitis. An Amended Complaint was filed on April 16, 2021 with substantially the same allegations. Genfit seeks damages in an unspecified amount as well as injunctive relief. We have stated in pleadings that we did not request or take any steps to obtain Genfit’s protocol synopsis, have taken diligent steps to remove and quarantine it, and are not using any Genfit trade secrets in our clinical trials. On March 12, 2021, the court granted a Temporary Restraining Order (later converted to a Preliminary Injunction), prohibiting us from accessing or disseminating the protocol synopsis, using any Genfit trade secrets contained therein or destroying any evidence related thereto. We filed a Motion to Dismiss the Amended Complaint that was granted on September 9, 2021, with leave to amend. Genfit filed a Second Amended Complaint on October 15, 2021 with substantially the same allegations and claims for relief as in the original complaint. We filed a Motion to Dismiss the Second Amended Complaint that was granted on January 21, 2022, without further leave to amend. What remains in the complaint is an alleged misappropriation of the protocol synopsis as a whole. We filed our Answer to what remained of the Second Amended Complaint on February 4, 2022. We intend to defend ourselves vigorously.

 

Item 1A.

Risk Factors

In addition to the factors discussed elsewhere in this report, the following are important factors that could cause actual results or events to differ materially from those contained in any forward-looking statements made by us or on our behalf. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not currently known to us or that we deem immaterial also may impair our business operations. If any of the following risks or such other risks actually occur, our business could be harmed.

RISK FACTOR SUMMARY

We are subject to a number of risks that if realized could materially harm our business, prospects, operating results, and financial condition. Some of the more significant risks and uncertainties we face include those summarized below. The summary below is not exhaustive and is qualified by reference to the full set of risk factors set forth in Item 1A of this Form 10-Q “Risk Factors.” Please carefully consider all of the information in this Form 10-Q, including the full set of risks set forth in the “Risk Factors” section, and in our other filings with the SEC before making an investment decision regarding CymaBay.

Risks Related to the COVID-19 Pandemic

 

   

Our business may be adversely affected by the effects of the COVID-19 pandemic, including those impacting our ability to enroll and conduct critical clinical trials, as well as impacts to our other development efforts, administrative personnel and third-party service providers.

Risks Related to Our Financial Condition and Capital Requirements

 

   

We have incurred significant net losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. We may need to raise additional equity and/or debt capital to fund our continued operations, including clinical trials and other product development. In the event we do not successfully raise sufficient funds to finance our product development activities, we will curtail our product development activities commensurate with the magnitude of the shortfall or our product development activities may cease altogether.

 

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Failure to remain in compliance with our obligations under the development financing agreement with Abingworth could lead to reduced funding under the agreement and/or the acceleration of potentially significant payments to Abingworth.

 

   

Our ability to generate future revenues from product sales is uncertain and depends upon our ability to successfully develop, obtain regulatory approval for, and commercialize product candidates, including most importantly, seladelpar.

 

   

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

Risks Related to Clinical Development and Regulatory Approval

 

   

Drug development and obtaining and maintaining regulatory approval for drug products is costly, time-consuming, and highly uncertain.

 

   

Serious complications or side effects in connection with the use or development of our product candidates could lead to delay or discontinuation of development of our product candidates.

Risks Related to Our Reliance on Third Parties

 

   

Our manufacturing partners and other service providers, including CROs managing our clinical trials, may fail to perform adequately in their efforts to support the development, manufacture, and commercialization of our drug candidates and future products.

Risks Related to Commercialization of Our Product Candidates

 

   

We have never successfully commercialized a product. If any of our product candidates receive marketing approval, they may nonetheless be unable to gain sufficient market acceptance by physicians, patients, health care payors and others in the medical community.

 

   

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable to generate any revenue.

 

   

The commercial success of our products is subject to significant competition from products or product candidates that may be superior to, or more cost effective than, our products or product candidates.

Risks Related to Our Intellectual Property

 

   

We may not be able to protect the confidentiality of our trade secrets, and our patents or other means of defending our intellectual property may be insufficient to protect our proprietary rights.

 

   

Patents or proprietary rights of others may restrict our development, manufacturing, and/or commercialization efforts and subject us to litigation and other proceedings that could find us liable for damages.

Other Risks Factors—Risks Related to Employees, Information Technology, and Owning Our Common Stock

 

   

Our business is dependent on our key personnel and will be harmed if we cannot recruit and retain leaders in our development, administrative, and commercial organizations.

 

   

Significant disruptions of information technology systems or breaches of data security could adversely affect our business.

 

   

Changes in and failures to comply with United States and foreign privacy and data protection laws, regulations and standards may adversely affect our business, operations and consolidated financial performance.

 

   

Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.

 

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Risks Related to the COVID-19 Pandemic

Our business may be adversely affected by the ongoing COVID-19 pandemic.

While the COVID-19 pandemic did not materially adversely affect our business operations in the three and nine months ended September 30, 2022, economic and health conditions in the United States and across most of the globe have continued to change. The emergence of COVID-19 variants have further disrupted the global economy. As a result of the COVID-19 pandemic, including the emergence of new variants, we have experienced and may continue to experience disruptions that could impact aspects of our business, including our progress towards the completion of our clinical studies and other associated drug development activities. Possible future disruptions are currently difficult to foresee and include, but are not limited to, potential risk areas as noted below:

 

   

We are currently managing clinical trials in geographies that are affected by the COVID-19 pandemic. While we have not experienced material impacts to our clinical activities through September 30, 2022, we are observing impacts due to COVID-19, including reluctance of subjects to enroll in clinical studies due to the ongoing pandemic, travel restrictions impacting study personnel and trial participants, personnel shortages at clinical sites and operations and facility restrictions impacting trial operations. We believe that the COVID-19 pandemic, including the emergence of COVID-19 variants, will have a continuing impact on various aspects of our clinical activities in the future. For example, pandemic-related reluctance or restrictions, including curtailment of activities, could reduce the rate of patient enrollment in our clinical trials, and impair the ability to efficiently treat patients at investigator sites. Additionally, our employees, representatives from our clinical research organization partners, and study investigators may be required to delay, or alter, their approach to complete work on our trials.

 

   

We have moved to a hybrid model of operations, with most employees working from our office for a portion of the week and working remotely for the rest of the week. The safety, health and well-being of our workforce is of primary concern and we may need to enact further precautionary measures to help minimize the risk of our employees being exposed to the coronavirus.

 

   

Our continuing reliance on personnel working from home may negatively impact productivity, or disrupt, delay, or otherwise adversely impact our business. In addition, this could increase our cyber-security and data privacy risks, create data accessibility concerns, and make us more susceptible to communication disruptions, any of which could adversely impact our business operations, or delay necessary interactions with regulators, contract manufacturers, contract research organizations, clinical trial sites, and other important agencies and contractors, which could result in increased costs to us.

 

   

In some jurisdictions, contractors involved in conducting our research and development activities may not be able to access their applicable work facilities for an extended period of time as a result of facility closure orders and the possibility that governmental authorities further modify such access restrictions.

 

   

The United States Food and Drug Administration (FDA), comparable foreign regulatory agencies, and ethics boards may experience operational interruptions or delays, which could impact timelines for regulatory meetings, submissions, trial initiations, and regulatory approvals.

The COVID-19 pandemic continues to evolve. The emergence of COVID-19 variants may also continue to affect the impact of the pandemic. The extent to which the pandemic may impact our business, including our preclinical, clinical and associated drug development activities, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of COVID-19, variants to COVID-19 that continue to arise and their relative transmissibility and virulence, the duration of the pandemic, travel restrictions and actions to contain the pandemic or treat its impact, such as social distancing and quarantines or lock-downs in the United States, particularly in the San Francisco Bay Area where our executive offices are located, and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

 

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Risks Related to Our Financial Condition and Capital Requirements

We will need additional capital in the future to sufficiently fund our operations and research.

We have incurred significant net losses since our inception. We anticipate that we will continue to incur significant losses for the foreseeable future, and we may never achieve or maintain profitability. As of September 30, 2022, we had cash, cash equivalents and marketable securities of approximately $153.4 million. On July 30, 2021, we entered into a Development Financing Agreement with an affiliate of Abingworth LLP pursuant to which Abingworth has committed to provide us up to $100.0 million in funding, of which we have already received $75 million. In November 2021, we sold 15,625,000 shares of common stock at $4.00 per share and pre-funded warrants to purchase 3,125,000 shares of common stock at $3.9999 per share in a public equity offering, for total gross offering proceeds of approximately $75 million, before deducting the underwriting fees and other offering expenses. We may need to raise additional equity and/or debt capital to fund our continued operations, including clinical trials and other product development. We may also choose to raise additional equity and/or debt capital if appropriate opportunities become available. Our monthly spending levels vary based on new and ongoing development and corporate activities. Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a time-consuming, expensive and uncertain process that takes years to complete.

In the event we do not successfully raise sufficient funds to finance our product development activities, we will curtail our product development activities commensurate with the magnitude of the shortfall or our product development activities may cease altogether. To the extent that the costs of ongoing development exceed our current estimates and we are unable to raise sufficient additional capital to cover such additional costs, we will need to reduce operating expenses, sell assets, enter into strategic transactions, or effect a combination of the above. No assurance can be given that we will be able to enter into any of such transactions on acceptable terms, if at all.

Our future funding requirements and sources will depend on many factors, including but not limited to the following:

 

   

the rate of progress and cost of our clinical studies;

 

   

the need for additional or expanded clinical studies;

 

   

the rate of progress and cost of our Chemistry, Manufacturing and Control development, registration, validation and commercial programs;

 

   

the timing, economic and other terms of any licensing, collaboration or other similar arrangement into which we may enter;

 

   

the costs and timing of seeking and obtaining FDA and other regulatory approvals;

 

   

the extent of our other development activities;

 

   

the costs of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights; and

 

   

the effect of competing products and market developments.

If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing development and commercialization efforts, which would have a material adverse effect on our business, operating results, prospects, and on our ability to develop our product candidates.

Failure to remain in compliance with our obligations under the development financing agreement with Abingworth could lead to reduced funding under the agreement and/or the acceleration of potentially significant payments to Abingworth.

On July 30, 2021, we entered into a Development Financing Agreement (the Financing Agreement) with Abingworth, pursuant to which Abingworth agreed to provide funding to us to support our development of seladelpar for the treatment of PBC. Pursuant to the Financing Agreement, Abingworth funded $75 million through November 2022. Pursuant to the Financing Agreement, we will be required to use commercially reasonable efforts to develop seladelpar and complete our development program in accordance with the Financing Agreement and an agreed timeline. In return, we will pay to Abingworth (1) upon the first to occur of regulatory approval of seladelpar for the treatment of PBC in the U.S., U.K., Germany, Spain, Italy or France (Regulatory Approval), fixed success payments equal to 2.0x of the funding provided and (2) variable success payments equal to 1.1x of the funding provided upon first reaching certain U.S. product sales milestones. At the time that Abingworth receives, collectively, an aggregate of 3.1x of the funding provided, our payment obligations under the Financing Agreement will be fully satisfied.

 

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The Financing Agreement terminates upon the payment of all payments owing to Abingworth, unless earlier terminated. The Agreement may be earlier terminated in a number of circumstances including (i) by Abingworth if we fail to use commercially reasonable efforts to develop seladelpar as set forth in the Financing Agreement or if we fail to make required payments (Fundamental Breach) or (ii) by either party if the other party materially breaches the Agreement (Material Breach). In certain instances, upon the termination of the Financing Agreement, we will be obligated to pay Abingworth a multiple of the amounts paid to us under the Agreement, including specifically,

(i) 310% of such amounts in the event that Abingworth terminates the agreement due to (x) a Fundamental Breach, (y) our bankruptcy, or (z) a safety concern resulting from gross negligence on our part or due to a safety concern that was material on the Effective Date and the material data showing such safety concern was not publicly known, disclosed to Abingworth, or in the diligence room made available to Abingworth,

(ii) 200% of such amounts in the event the Agreement is terminated due to (x) our Material Breach or (y) the security interests of Abingworth being invalidated or terminated other than as set forth in the Financing Agreement, and

(iii) 100% of such amounts in the event of certain irresolvable disagreements within the executive review committee overseeing our development of seladelpar.

In addition, if, following certain terminations, we continue to develop seladelpar for the treatment of PBC and obtain Regulatory Approval, we will make the payments to Abingworth as if the Financing Agreement had not been terminated, less any payments made upon termination.

The payments required under the Financing Agreement are significant. Failure to generate sufficient revenue to make such payments if and as they become due, or failure to otherwise finance such payments would have a material adverse effect on our business. In addition, if we are unable to comply with our obligations under the Financing Agreement and/or one of the termination events described above occurs, Abingworth may be relieved of their obligation to provide further funding under the Financing Agreement and our payments obligations thereunder may be accelerated. The acceleration of payments under the Financing Agreement would have a material impact on our business and we may not be able to make such payments at such time.

Our ability to generate future revenues from product sales is uncertain and depends upon our ability to successfully develop, obtain regulatory approval for, and commercialize product candidates.

Our ability to generate revenue and achieve profitability depends on our ability, alone or with collaborators, to successfully complete the development of, obtain the necessary regulatory approvals for, and commercialize, product candidates. We do not anticipate generating revenues from sales of our product candidates in the near future, if ever.

Conducting preclinical testing and clinical trials is a time-consuming, expensive, and uncertain process that takes years to complete, and we may never generate the necessary data required to obtain regulatory approval and achieve product sales. Our anticipated development costs would likely increase if we do not obtain favorable results or if development of our product candidates is delayed. In particular, we would likely incur higher costs than we currently anticipate if development of our product candidates is delayed because we are required by a regulatory authority such as the FDA to perform studies or trials in addition to those that we currently anticipate. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to predict the timing or amount of any increase in our anticipated development costs.

In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for several years, if at all. Even if one or more of our product candidates is approved for commercial sale, we anticipate incurring significant costs in connection with commercialization. As a result, we cannot assure you that we will be able to generate revenues from sales of any approved products, or that we will achieve or maintain profitability even if we do generate sales.

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. We do not have any committed external source of funds. If appropriate opportunities become available, we may seek to raise additional equity and/or debt capital to fund our continued operations, including clinical trials and other product development.

To raise additional funds to support our operations, we may sell additional equity or debt securities, enter into collaborations, strategic alliances, or licensing arrangements or other marketing or distribution arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interests of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of stockholders. Debt financing, if

 

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available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, and declaring dividends, and may impose limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business.

If we raise additional funds through collaborations, strategic alliances, licensing arrangements or other marketing or distribution arrangements with third parties, we may have to relinquish valuable rights to our intellectual property, technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us.

If we are unable to expand our operations or otherwise capitalize on our business opportunities, our business, financial condition and results of operations could be materially adversely affected. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts, or grant others rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Risks Related to Clinical Development and Regulatory Approval

We depend on the success of our product candidates and we may not obtain regulatory approval or successfully commercialize our product candidates.

We have not marketed, distributed or sold any products. The success of our business depends upon our ability to develop and commercialize our product candidates. The success of any product candidate will depend on many factors, including the following:

 

   

successful enrollment and completion of clinical trials, including, in the case of RESPONSE, sufficient subjects that receive liver biopsies;

 

   

receipt of marketing approvals from the FDA and regulatory authorities outside the United States for the product candidate;

 

   

establishing commercial manufacturing capabilities by making arrangements with third-party manufacturers;

 

   

launching commercial sales of the product, whether alone or in collaboration with others;

 

   

acceptance of the product by patients, the medical community and third-party payors;

 

   

effectively competing with other therapies;

 

   

a continued acceptable safety profile of the product following marketing approval; and

 

   

obtaining, maintaining, enforcing and defending intellectual property rights and claims.

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidate, which would materially harm our business.

We depend on the successful completion of clinical trials for our product candidates.

Before obtaining regulatory approval for the sale of our product candidates, we must complete our current clinical trials as well as potentially additional clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more of our clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for their products.

We may experience a number of unforeseen events during clinical trials for our product candidates, including seladelpar, that could delay or prevent the commencement and/or completion of our clinical trials, including the following:

 

   

regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

 

   

the clinical study protocol may require one or more amendments delaying study completion;

 

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clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;

 

   

the number of subjects required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be insufficient or slower than we anticipate, we may have to compete with other clinical trials to enroll eligible subjects, or subjects may drop out of these clinical trials at a higher rate than we anticipate;

 

   

the number of patients in our RESPONSE clinical trial that receive biopsies may be insufficient to satisfy regulatory requirements;

 

   

clinical investigators or study subjects may fail to comply with clinical study protocols;

 

   

trial conduct and data analysis errors may occur, including, but not limited to, data entry and/or labeling errors;

 

   

our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

 

   

we might have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the subjects are being exposed to unacceptable health risks;

 

   

geo-political turmoil between Russia and Ukraine and/or continuing military actions in Ukraine may cause us to have to wind down clinical trials of seladelpar in Russia or in other countries;

 

   

regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements;

 

   

the cost of clinical trials of our product candidates may be greater than we anticipate;

 

   

the supply or quality of our clinical trial materials or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; and

 

   

our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators to suspend or terminate the trials.

Because successful development of product candidates is uncertain, we are unable to estimate the actual funds required to complete research and development and commercialize our products under development.

Negative or inconclusive results of our future clinical trials of product candidates could cause the FDA or other regulatory authorities to require that we repeat or conduct additional clinical studies. If later stage clinical trials do not produce favorable results, our ability to obtain regulatory approval for our product candidates may be adversely impacted.

Geo-political turmoil between Russia and Ukraine and continuing military actions in Ukraine have caused us to suspend clinical trial activity in Ukraine and wind down clinical trial activity in Russia.

We have a small number of clinical sites in Russia in our RESPONSE clinical trial and in our ASSURE clinical trial. Because of continuing military action in Ukraine we suspended all clinical trial activity in Ukraine. Ongoing geo-political turmoil and continuing military action in the region, together with widening sanctions imposed on Russia, have also caused us to begin to wind down clinical trial activity in Russia. We expect clinical trial activity in Russia for the ASSURE clinical trial to terminate in early 2023 and for the RESPONSE clinical trial in mid-2023. The ongoing military action and sanctions may still affect our RESPONSE and ASSURE clinical trials in Russia prior to wind down. Shipments of seladelpar to Russia may become difficult, delayed or impossible. Shipments of clinical samples from Russia may also become difficult, delayed or impossible. In addition, sites, site personnel and patients may not be able to continue in the trials and we may need to suspend or terminate the trials in Russia prior to the end of our expected wind down. While we have only a small number of clinical sites and enrolled patients in Russia, these disruptions and potential suspensions could complicate the analysis of data from subjects in Russia.

Delays in clinical trials are common and have many causes, and any delay could result in increased costs to us and jeopardize or delay our ability to obtain regulatory approval and commence product sales.

Clinical testing is expensive, difficult to design and implement, can take many years to complete, and is uncertain as to outcome. We may experience delays in clinical trials at any stage of development and testing of our product candidates and any delay could result in increased costs to us. Any clinical trials we undertake may not begin on time, have an effective design, enroll a sufficient number of subjects, or be completed on schedule, if at all. The impact of the ongoing COVID-19 pandemic is also uncertain, and may create additional delays in completing our clinical trials.

 

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Events that may result in delays or unsuccessful completion of clinical trials include the following:

 

   

reluctance of patients to enroll in our clinical trials due to the COVID-19 pandemic;

 

   

personnel shortages at clinical sites due to the COVID-19 pandemic that impact the enrollment timeline or operations at clinical trial sites participating in our clinical trials;

 

   

competition for eligible patients from competing clinical trials;

 

   

delays in obtaining regulatory approval to commence a trial;

 

   

delays in reaching agreement with the FDA or other regulatory authorities on final trial design;

 

   

imposition of a clinical hold following a reported safety event;

 

   

an inspection of our clinical trial operations or trial sites by the FDA or other regulatory authorities;

 

   

delays in reaching agreement on acceptable terms with prospective contract research organizations (CROs) and clinical trial sites;

 

   

delays in obtaining required institutional review board (IRB) approval at each site;

 

   

delays in recruiting suitable patients to participate in a trial;

 

   

delays in having subjects complete participation in a trial or return for post-treatment follow-up;

 

   

delays caused by the need to enroll additional subjects that have biopsies in the RESPONSE trial;

 

   

delays caused by subjects dropping out of a trial due to side effects or otherwise;

 

   

changes to treatment guidelines or the introduction of a new standard of care;

 

   

delays caused by clinical sites dropping out of a trial;

 

   

time required to add new clinical sites;

 

   

delays by our contract manufacturers to produce and deliver sufficient supply of clinical trial materials; and

 

   

delays in importing clinical trial materials into foreign countries where our clinical trials are being conducted.

If initiation or completion of any clinical trials we may undertake for our product candidates is delayed for any of the above reasons, our development costs may increase, the approval process could be delayed, any periods during which we may have the exclusive right to commercialize our product candidates may be reduced and our competitors may bring products to market before us. Any of these events could impair our ability to generate revenues from product sales, which would have a material adverse effect on our business.

Our product candidates may cause adverse effects or have other properties that could delay or prevent their regulatory approval or limit the scope of any approved label or market acceptance.

In May 2016, we announced results of a High Dose Phase 2 clinical study of seladelpar in patients with PBC. During the course of this trial three cases of asymptomatic, reversible transaminase elevations occurred, and we made the decision to discontinue the study early after review of safety and efficacy data demonstrated a need for further dose reduction to optimize clinical safety and efficacy. The emergence of adverse events (AEs) and histological observations in subsequent seladelpar clinical trials could prevent us from further developing seladelpar or could result in the denial of regulatory approval.

Furthermore, if any of our approved products cause serious or unexpected side effects after receiving market approval, a number of potentially significant negative consequences could result, including the following:

 

   

regulatory authorities may withdraw their approval of the product or impose restrictions on its distribution in a form of a risk evaluation and mitigation strategy (REMS) plan;

 

   

regulatory authorities may require the addition of labeling statements, such as black box or other warnings or contraindications that could diminish the usage of the product or otherwise limit the commercial success of the affected product;

 

   

we may be required to change the way the product is administered or to conduct additional clinical studies;

 

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we may choose to discontinue sale of the product;

 

   

we could be sued and held liable for harm caused to patients; or

 

   

our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product and could substantially increase the costs of commercializing our product candidates.

Potential conflicts of interest arising from relationships with principal investigators for our clinical studies and any related compensation with respect to clinical studies could adversely affect the drug approval process.

Principal investigators for our clinical studies may serve as scientific advisors or consultants to us or may be affiliated with our other service providers, including clinical research organizations or site management organizations, and from time to time receive cash compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical study site or in the applicable study may be questioned or jeopardized.

We may be subject to costly claims related to our clinical studies and may not be able to obtain adequate insurance.

Because we conduct clinical studies in humans, we face the risk that the use of seladelpar or other product candidates will result in adverse side effects. We cannot predict the possible harms or side effects that may result from our clinical studies. Although we have clinical study liability insurance, our insurance may be insufficient to cover any such events. There is also a risk that we may not be able to continue to obtain clinical study coverage on acceptable terms. In addition, we may not have sufficient resources to pay for any liabilities resulting from a claim excluded from, or beyond the limit of, our insurance coverage. There is also a risk that third parties that we have agreed to indemnify could incur liability. Any litigation arising from our clinical studies, even if we are ultimately successful, would consume substantial amounts of our financial and managerial resources and may create adverse publicity.

After the completion of our clinical trials, we cannot predict whether or when we will obtain regulatory approval to commercialize our product candidates and we cannot, therefore, predict the timing of any future revenue from our product candidates. Regulatory approval of a product candidate is not guaranteed, and the approval process is expensive, uncertain and lengthy.

We cannot commercialize our product candidates until the appropriate regulatory authorities, such as the FDA, have reviewed and approved the product candidate. The regulatory agencies may not complete their review processes in a timely manner, or we may not be able to obtain regulatory approval for our product candidates. Additional delays may result if a product candidate is brought before an FDA advisory committee, which could recommend restrictions on approval or recommend non-approval of the product candidate. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory agency policy during the period of product development, clinical studies and the review process. As a result, we cannot predict when, if at all, we will receive any future revenue from commercialization of any of our product candidates. The FDA and foreign regulatory authorities have substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of a product candidate for many reasons, including the following:

 

   

we may be unable to demonstrate to the satisfaction of regulatory authorities that a product candidate is safe and effective for any indication;

 

   

regulatory authorities may not find the data from nonclinical studies and clinical studies sufficient or may differ in the interpretation of the data;

 

   

regulatory authorities may require additional nonclinical or clinical studies;

 

   

regulatory authorities might not approve our third party manufacturers’ processes or facilities for clinical or commercial product;

 

   

regulatory authorities may change their approval policies or adopt new regulations;

 

   

regulatory authorities may disagree with the design or implementation of our clinical studies;

 

   

regulatory authorities may not accept clinical data from studies that are conducted in countries where the standard of care is potentially different from the jurisdiction of that regulatory authority;

 

   

the results of clinical studies may not meet the level of statistical significance required by regulatory authorities for approval;

 

   

we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks; and

 

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the data collection from clinical studies of our product candidates may not be sufficient to support the submission of a new drug application (NDA), marketing authorization or other equivalent submission, or to obtain regulatory approval in the United States or elsewhere.

In addition, events raising questions about the safety of certain marketed pharmaceuticals may result in increased caution by the FDA and other regulatory authorities in reviewing new pharmaceuticals based on safety, efficacy or other regulatory considerations and may result in significant delays in obtaining regulatory approvals.

Even if we obtain regulatory approval for our product candidates, we will still face extensive regulatory requirements and our products may face future development and regulatory difficulties.

Even if we obtain regulatory approval in the United States, the FDA may still impose significant restrictions on the indicated uses or marketing of our products or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. Our products would be subject to additional ongoing FDA requirements governing the labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, record-keeping and reporting of safety and other post-market information. The holder of an approved NDA is obligated to monitor and report AEs and any failure of a product to meet the specifications in the NDA. The holder of an approved NDA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. Advertising and promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws. Furthermore, promotional materials must be approved by the FDA prior to use for any drug receiving accelerated approval.

In addition, manufacturers of drug products and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance with current Good Manufacturing Practices (cGMP), and adherence to commitments made in the NDA. If we, or a regulatory agency, discover previously unknown problems with a product, such as quality issues or AEs of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions relative to that product or the manufacturing facility, including requesting recall or withdrawal of the product from the market or suspension of manufacturing.

If we, or our third-party contractors, fail to comply with applicable regulatory requirements following approval of our product candidate, a regulatory agency may:

 

   

issue an untitled or warning letter asserting violation of the law;

 

   

seek an injunction or impose civil or criminal penalties up to and including imprisonment or monetary fines;

 

   

suspend or withdraw regulatory approval;

 

   

suspend any ongoing clinical trials;

 

   

refuse to approve a pending NDA or supplements to an NDA; or

 

   

request recall and/or seize product.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize our products and inhibit our ability to generate revenues.

The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products. If we are found to have improperly promoted our products for off-label uses, we may become subject to significant fines and other liability.

The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. If we receive marketing approval for our product candidates, physicians may nevertheless prescribe such products to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, we may become subject to significant government fines and other related liability. For example, the federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA also has requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.

 

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Even if we obtain FDA approval for our product candidates in the United States, we may never obtain approval for or commercialize our product candidates outside of the United States, which would limit our ability to realize their full market potential.

In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements on a country-by-country basis regarding safety and efficacy. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and costs for us and require additional preclinical studies or clinical trials that could be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. We do not have any product candidates approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full market potential of our products will be unrealized.

Coverage and adequate reimbursement may not be available for our future products, which could make it difficult for us to sell profitably, if approved.

Market acceptance and sales of any products that we commercialize will depend in part on the extent to which coverage and adequate reimbursement will be available from third-party payers, including government health administration authorities, managed care organizations and private health insurers. Third-party payers decide which therapies they will pay for and establish reimbursement levels. Third-party payers in the United States often rely upon Medicare coverage policy and payment limitations in setting their own coverage and reimbursement policies. However, decisions regarding the extent of coverage and amount of reimbursement to be provided for any products that we develop will be made on a payer-by-payer basis. One payer’s determination to provide coverage for a drug does not assure that other payers will also provide coverage and adequate reimbursement for the drug. Additionally, a third-party payer’s decision to provide coverage for a therapy does not imply that an adequate reimbursement rate will be approved. Third-party payers are increasingly challenging the price, examining the medical necessity and reviewing the cost-effectiveness of medical products, therapies and services, in addition to questioning their safety and efficacy. We cannot be sure that coverage and reimbursement in the United States or elsewhere will be available for any product that we may develop, and any reimbursement that may become available may be decreased or eliminated in the future.

Our relationships with health care professionals, customers and payors may be subject to applicable anti-kickback, fraud and abuse and other health care laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

Health care professionals and third-party payors will play a primary role in the recommendation and prescription of any products for which we obtain marketing approval. Our current and future arrangements with healthcare professionals, third-party payors and customers may expose us to broadly applicable fraud and abuse and other health care laws and regulations that may constrain the business or financial arrangements and relationships through which we research, as well as market, sell and distribute our products. Restrictions under applicable federal and state health care laws and regulations, include the federal Anti-Kickback Statute, the federal False Claims Act, the Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, the federal false statements statute, the federal transparency requirements under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or PPACA, commonly referred to as the Physician Payments Sunshine Act, and analogous state laws and regulations, such as state anti-kickback and false claims laws.

Efforts to ensure that our business arrangements with third parties will comply with applicable health care laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other health care laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, exclusion from government funded health care programs, such as Medicare and Medicaid, integrity oversight and reporting obligations, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to significant criminal, civil or administrative sanctions, including exclusions from government funded health care programs.

 

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Current laws and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the health care system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any products for which we obtain marketing approval.

For example, the PPACA was enacted to broaden access to health insurance, reduce or constrain the growth of health care spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Since its enactment there have been judicial and Congressional challenges to certain aspects of the PPACA as well as efforts to repeal or replace certain aspects of the PPACA. For example, Congress considered legislation that would repeal or repeal and replace all or part of the PPACA. While Congress has not passed comprehensive repeal legislation, it has enacted laws that modify certain provisions of the PPACA. It is unclear how litigation, and the healthcare reform measures of the Biden administration will impact the PPACA and our business.

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. In addition, there have been several recent congressional inquiries, proposed bills and other proposals designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products including instituting reference pricing. At the federal level, the Trump administration used several means to propose or implement drug pricing reform, including through federal budget proposals, executive orders and policy initiatives. However, it is unclear whether the Biden administration will work to reverse these measures or pursue similar policy initiatives. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

We are not sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. Further, it is possible that additional governmental action is taken in response to the COVID-19 pandemic.

Risks Related to Our Reliance on Third Parties

We rely on third-party manufacturers to produce our preclinical and clinical drug supplies, and we intend to rely on third parties to produce commercial supplies of any approved products.

We do not own or operate, and we do not expect to own or operate, facilities for product manufacturing, storage and distribution, or testing. We currently rely on third-party manufacturers for supply of our preclinical and clinical drug supplies. We expect that in the future we will continue to rely on such manufacturers for drug supplies that will be used in clinical trials of our product candidates, and for commercialization of any of our product candidates that receive regulatory approval.

The facilities used by our contract manufacturers to manufacture the approved product must be approved by the FDA pursuant to inspections that will be conducted only after we submit an NDA to the FDA, if at all. A representative from the European Medicines Agency (EMA) or another regulatory authority may also require inspection and approval of such contract manufacturing facilities. We are completely dependent on our contract manufacturing partners for compliance with the FDA’s requirements for manufacture of finished pharmaceutical products. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the FDA’s strict regulatory requirements of safety, purity and potency, we will not be able to secure and/or maintain FDA approval for our product candidates. In addition, we have no direct control over the ability of the contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If our contract manufacturers cannot meet FDA standards, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our products. No assurance can be given that our manufacturers can continue to make clinical and commercial supplies of product candidates, at an appropriate scale and cost to make it commercially feasible.

In addition, we do not have the capability to package and distribute finished products to pharmacies and other customers. If we receive marketing approval from the FDA, we intend to sell pharmaceutical product packaged and distributed by one or more pharmaceutical product packagers/distributors. Although we have entered into agreements with our current contract manufacturers and packager/distributor for clinical trial material, we will need to enter into commercial agreements with contract manufacturers and with one or more pharmaceutical product packagers/distributors to ensure proper supply chain management once we are authorized to make commercial sales of our product candidates. However, we may be unable to maintain agreements or negotiate commercial supply agreements on commercially reasonable terms with contract manufacturers and pharmaceutical product packagers/distributors, which could delay our ability to launch commercial sales and/or have a material adverse impact upon our business.